Transcript:
Welcome to the Tax Sale Podcast, where tax sale investing is made easy. My name is Casey Denman, I’m a tax sale veteran, the leading tax sale expert, author of The Tax Sale Playbook, founder of The Tax Sale Academy and I’m your host right here on The Tax Sale Podcast.
Thank you so much for joining me on today’s podcast episode. This is a completely free podcast and is brought to you through and because of The Tax Sale Academy. If you’re looking to learn more about investing in tax defaulted real estate, just head to TaxSaleAcademy.com. Again that’s TaxSaleAcademy.com.
As the tax sale guy frequently get tax sale related questions of course. And I love answering these questions – I thrive on being able to help others, it truly provide fulfillment for me. But unfortunately, I hate it when I can’t answer a question the way I really need to. I hate it when I begin my answer with, in quote, it depends… because no one want to hear those words.
But the fact is that it does, in fact, depend. When we look at this business what are we really looking at, at the core? We’re looking at a business where the county sells either liens or deeds to properties because the owner failed to pay the property taxes. Once sold, the county recovers a portion of those back due taxes through the purchase price, while the property transitions into a tax revenue status once again. As investors, our benefit is secondary to the county’s benefit. The county, they’re concerned with the taxes, not us. They need those taxes in order to meet their budgets, to provide services and amenities that we need. We all should understand that by now. But the county can’t just come out and make their own laws when it concerns property taxes. Instead, they’re made by the state. And any changes go through the appropriate committees and are voted on by our elected officials. And it’s a very lengthy and involved process most of the time.
So, as you can tell, the answer to many of the questions that I get is “it depends . . . on your state.” I’ve always been a huge fan of reading and studying the state statutes in the areas that you invest or plan to invest in. These laws are the very things that allow us to have a tax sale investment business. They are the guide, the instructions, the rules to our existence as tax sale investors. I even went as far as curating an encyclopedia of tax sale laws for my academy members. They’re extremely important.
The next question, of course, is why are they so important? They’re important because they differ. Every single state is slightly different. And those differences can be rather serious. So I wanted to shoot an episode today to discuss just a few of those differences. The fact is that there are plenty more differences in tax sale laws between states, but the ones we’ll be discussing are the primary ones that you strongly need to take a look at before investing in a differnet state OR taking someone else’s advice when they aren’t familiar with the state you’re investing in.
Alright, let’s take a look at 10 of the key elements that differ amongst states.
The first and most obvious are the system types. This isn’t going to be an episode explaining the different types of tax sale systems, but for the most part we have four. We have tax lien systems, tax deed systems, redeemable deed systems and the hybrid systems. This is the process, chosen by the state, that they use to handle their properties with delinquent taxes. We should also note that not all systems are the same. Just because you’ve participated in one tax lien state does NOT mean that the next tax lien state you participate in will be the same. Because it will likely have something that’s different. Keep that in mind.
On those same lines is the foreclosure process. In some states, the county handles the foreclosure process for you if you purchase tax liens. Simply complete the paperwork, file it with the county and the property is yours a short time later. But in some states, YOU are the responsible party. Want to foreclose that tax lien? Well, you have better hire and attorney to do it for you. The same can be said for redemption rides? In some states you must remove the former owner’s redemption rights through the legal system, while they’ll just fall off in other states. Something to keep in mind as this impacts timelines and expenses.
The next difference is something that has been the cause of or the frustration to many people lately and that is auction formats. To this day, some states have laws that require the sales to be held in person. Others allow sales to be held in any manner, including online. This is a key issue. When laws for many states were written decades ago, the internet didn’t exist so this wasn’t even a thought at that time. In fact, they were included simply because an in person sale was the preferred method to the only real alternative at the time, which was a mail in bid. Over the years, most states have modified their laws to include online or electronic sales. Some have even force changed legislation this last year due to the pandemic. But obviously, this is something that impacts you and something that varies greatly from state to state.
How about dates? This is an important one to know if you plan on bidding in multiple areas OR if you just want to time your investments correctly. Some state statutes require sales be held once per year during a specific month or even on a specific day of the year. Other states allow sales to be held on a monthly or bi monthly basis. It’s important to figure this out to make sure your timing is correct.
What about remaining liens? How are they handled? In most states, any liens, with the exception of governmental liens will be extinguished upon tax foreclosure – but be careful and make sure you fully understand thwat this means? First, a state like New Mexico might still have a few liens that remain and become your responsibility. Outside of that, what is required for notices? In most states, the law requires that any lien holders be provided notice of the pending tax foreclosue. If that notice isn’t provided, then the lien remains. All of this differs between states, so be sure you know the laws in the state you’re investing in.
Alright, next one. Who handles the sale? In most states it’s handled at the county level. The county takes care of everything and you’ll go directly to them for lists, bidding . . . literally everything. In other states, there is a dedicated department of the state governmental that handles everything. Additionally, some states require that the government handles all aspect of it, other states require attorneys handle all aspect, other states allow an approved third party to handle everything. There are pros and cons to each one, and in the end it might not make that much of a difference, but just keep in mind that every state had different requirements when it comes to the handling of the sale and you might end preferring one manner over another.
Alright, next one are the challenges to tax sales. And this is likely something referenced in state statute, but determined more so by case law. In some states, once a tax foreclosure has taken place it is final. In other states, there is a statutory challenge period where the former owner must contest the sale and prove that it was not handled according to state statute. This is extremely hard to do and very rare in most cases. But in some states, like it or not, some judges are very lenient with former owners and will overturn sales from time to time. Odds are that it’ll never happen to most investors, but do a little research and understand that it CAN happen. And your odds do increase slightly in specific states.
Another difference from state to state revolves around title insurance. Now there are far too many details to discuss in this podcast, but title insurance can be difficult to get for tax sale properties without additional action. In some states, title insurance companies will issue title insurance against a property after a set period of time. The period of time is usually related to the ability to challenge the sale in court – as in, after a set date, there is no challenges allowed on any grounds. So, even if the state doesn’t allow a challenge specifically through tax foreclosure laws, there is a chance that somewhere in the laws they can still challenge it up until a certain date unless you’ve cleared to title. In some states this is 5 or 10 years and in other states it could be upwards of 20-25 years. This is something you’ll want to research if your planning on waiting the required time period before selling the property just so you can get title insurance.
Something else that varies from state to state are the allowable bidders. Who can bid? Some states will allow an agent to bid on your behalf, others require you to be there to bid for yourself. If you’re investing using an LLC, trust or corporation, you had better check to see what is required – some states will require the corporate docs or trust agreement to let you place your bid. Outside of that, some states, such as Michigan, don’t allow bidders who owe delinquent taxes to bid at tax sales. So these are all situations you need to research and figure out which might apply to you.
And our last difference between states are the minimum bid amounts. In the majority of states, the minimum bid is the amount of the back due taxes, interest and fees. That’s where the auction usually starts. In some states, however, they don’t use this figure. Instead they base the minimum bid off a percentage of the value of the property. Some states have special situations that apply as well – Florida, for example, has higher opening bids for properties that are homesteads as they add 50% of the assessed value to the typical opening bid for those specific properties. We can also look at properties that go unsold, such as OTC properties. In some states, the cost of the OTC properties will NEVER come own. In other states, they’ll come down after a set period or time or might even become negotiable. These are all things to take a look into.
So there are ten ways that the process varies between states. The truth is that there are plenty more variations amongst the process. While the systems are similar in some states, no two states are exactly alike. That’s why it’s important to review the laws, perform your own research and to never approach it as a one size fits all approach. Every state is in fact different and many of the questions you might have will come with the words it depends. So take the time to dig into your state to see how it differs from others.
I truly hope this episode has helped you out. If it did, please take just a few seconds out of your day to leave us some positive feedback on whatever podcasting platofmr you’re listening to us on right now.
And if you enjoy our free trainings like this one and are looking for more in depth trainings, you’ll love The Tax Sale Academy which you can learn more about by going to taxsaleacademy.com.
We’ll see you next time, right here on the tax sale podcast. Take care bye bye.